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Spain's Troubles Pushing Down Prices of These Three Spanish Stocks
Posted by: guruhl (IP Logged)
Date: June 12, 2012 05:16PM

After years trying to fix its financial crisis, Spain’s future is still uncertain. On June 9, the country’s leaders agreed to accept from European finance ministers an emergency $125 billion bailout to shore up its banks and help stabilize its economy. Currently, the country has an unemployment rate of 24.3 percent, and Prime Minister Mariano Rajoy is aiming to cut the deficit to 5.3 percent of gross domestic product this year and 3 percent by the end of 2013. The European Commission estimates that the deficit will end the year with a deficit of 6.4 percent of GDP and 6.3 percent in 2013.

Uncertainty has pushed Spanish stocks down to unusually low prices. According to GuruFocus’ All-in-One Screener, the three largest U.S.-traded Spanish stocks are: Banco Santander (STD), Banco Bilbao (BBVA) and Telefonica (TEF).

Banco Santander’s stock price has declined 45.75 percent in the last year. It currently trades at about $6 per share, near its 52-week low of $5.19, and has a market cap of $54.6 billion and P/E ratio of 6.66. Fitch Ratings downgraded the bank’s long-term issuer default ratings on Monday. It said that the bank owns a large portfolio of domestic sovereign debt and is highly exposed to domestic counterparties, making profitability and asset quality vulnerable to macroeconomic and market trends.

But Banco Santander has diversification across international markets that helps stabilize it, with 56 percent of profit derived from high-growth emerging countries. It also had some positive developments in the first quarter. It earned a profit of 1.6 billion euro, 23.9 percent less than the previous year, due primarily to still high provisions in some units, higher minority interests in Brazil and Chile, a reduced stake in Santander USA and more taxes. Its non-performing loan ratio rose slightly to 3.98 percent, but was lower than the NPL ratio in Spain, which was 5.75 percent.

Ken Fisher and David Dreman both added to their stakes in Banco Santander in the first quarter of 2012. Bruce Berkowitz sold out.

Dreman listed Banco Santander as one of his worst performers in 2011, but said in his Forbes column in March, “Overall I stand by my 2011 calls. I am a contrarian value investor and not a timer, and it’s not unusual for my picks to be ‘early.’”

Banco Bilbao Vizcaya Argentina SA (BBVA) ADR declined 40 percent in the last year and 24 percent year to date. Fitch Ratings also cut its rating for Banco Bilbao for the same reason as Banco Santander. The two banks are the largest lenders in Spain. Banco Balboa and Santander are two of only three banks that are well capitalized enough to meet loan loss provisions in 2012 and 2013 if that were required, according to S&P.

Banco Bilbao is solvent after earnings over the first three months of 2012 enabled it to meet EBA capital recommendations prior to their June 30, 2012 deadline. In the first quarter it built a 9 percent core capital according to EBA criteria, 10.7 percent under Basel II. It did this without selling any strategic assets, resorting to public aid or modifying shareholder remuneration. The bank earned a profit of $1.3 billion in the first quarter, up from a net loss of $182 million in the previous quarter, and down from $1.6 billion in the year-ago quarter.

Banco Bilbao’s non-performing asset ratio ended the first quarter at 4%, differing across its different geographic segments. Non-performing assets were 16.1 billion euros at the end of the first quarter, compared to 15.9 billion euros at year-end 2011. The number went up due to the higher NPA ratio in Spain, exchanged rates and stricter regulatory framework in Mexico.

David Dreman and Jim Simons are the only two gurus to hold Banco Bilbao stock, though Simons cut his stake by 93.5 percent in the first quarter.

Telefonica (TEF) is the third-largest U.S.-traded Spanish stock by market cap, with a market cap of $57.4 billion. It trades for $12.31, off of its 52-week high of $24.82. The telecommunications company also has a dividend yield of 9.1 percent and P/E of 3.1. Its stock dropped 47 percent over the last year and 28 percent year to date.

In order to reduce its debt, Telefonica agreed to sell a 4.56 percent stake in China Unicom (CHU) in June for $1.4 billion. It currently has $70 billion in debt and about $22.4 billion in cash on its balance sheet. After the sale, Telefonica will still have a 5.01 percent stake in China Unicom.

The company’s European has suffered due to the financial crisis. Overall revenue in the first quarter 2012 increased 0.5 percent, largely due to mobile termination rate cuts. While revenue in its Latinoamerica segment increased 8.3 percent, revenue in Telefonica Europe declined 6.6 percent. Overall net income dropped 53.9 percent from the year-ago quarter.

Over the last decade, Telefonica has produced solid growth, raising revenue at a rate of 15.9 percent annually, EBITDA at 22.6 percent and book value at 9.6 percent. The company has also been generating cash flow over $10 billion for all but one year since 2004.

David Dreman and Charles Brandes bought more shares of Telefonica in the first quarter, and Bruce Berkowitz and Ken Fisher both sold out their positions. Other gurus that hold Telefonica are: Brian Rogers, Mario Gabelli and Jim Simons, who sold some of his shares in the fourth quarter (or his computers did).

To see more Spanish stocks, or other stocks by country, try GuruFocus’ All-in-One Screener.




Guru Discussed: David Dreman: Current Portfolio, Stock Picks
Bruce Berkowitz: Current Portfolio, Stock Picks
Stocks Discussed: STD, BBVA, TEF,
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